Prabhudas Lilladher is bullish on Union Bank of India and has recommended buy rating on the stock with a target of Rs 290 in its January 31, 2013 research report.
“Union Bank.s Q3FY13 miss on PAT was largely due to NPA provision build adjusted for which results were in line with our expectations. Slippages have remained under check for two quarters now and management remains sanguine on near-term asset quality. Operating metrics have held up better than peers but we see some weakness on margins and fees ahead. Asset quality stability is a positive and will be a near-term stock driver. However, we do not expect ROAs to inch-up beyond ~90bps in FY14 and high capital infusion (FY13 Tier-1 of 7.7%) will restrict significant ROE improvement. We retain .Accumulate., with a PT of Rs290/share (1x FY book).”
“In line with management guidance, Gross NPAs have come off to 3.3% from 3.6%, with slippages <2% for two quarters now and management expects to maintain its guidance of <3% Gross NPAs by Mar-13. Rs13bn of restructuring was also in line with expectations, with similar quantum expected in Q4FY13. Management has focused on building up B/S strength, with NPA coverage up ~500bps QoQ adjusted for which credit costs was in line with expectations. Union Bank’s operating metrics have held up relatively better than peers but we see some cracks. (1) NIMs are under pressure (down 7bps QoQ) due to rate cuts taken in the retail book and with an easing rate cycle, we see further pressure, going forward (2) Core fee growth which has been better than peers has moderated to ~7% YoY and non-interest income growth was largely driven by recoveries and treasury income. Union Bank’s asset quality is stabilising and though specific provisions may come off, possible margin pressure and higher provisions on restructuring may constrain large ROA improvement and needed dilution will constrain ROEs. Our FY14 ROA estimate of 90bps factors in ~100bps of credit costs (down 20bps QoQ) but flat margins which is a potential risk to our estimates,” says Prabhudas Lilladher research report.
Institutional holding more than 40% in Indian cos
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